Question

The current asset section of the Excalibur Tire Company’s balance sheet consists of cash, marketable securities,...

The current asset section of the Excalibur Tire Company’s balance sheet consists of cash, marketable securities, accounts receivable, and inventories. The December 31, 2021, balance sheet revealed the following: Inventories $ 750,000 Total assets $ 2,800,000 Current ratio 2.3 Acid-test ratio 1.05 What amount should be included in the noncurrent asset section of Excalibur Tire’s December 31, 2021, balance sheet?

Homework Answers

Answer #1

Abbreviations:

Current Assets = CA

Current Liabilities = CL

Inventory = Invent.

Liquid Assets = LA

Values Provided:

Current Ratio = 2.3 and Acid-Test Ratio = 1.05; Total Assets = $2,800,000; Inventory = $750,000

Now, Current Ratio = CA / CL

Or, 2.3 = CA / CL

Or, CL = CA / 2.3 --------Equation 1

Also, Acid-Test Ratio = LA / CL

Or, 1.05 = (CA – Invent.) / CL

Or, 1.05 = (CA - $750,000) / CL

Or, 1.05 x CL = CA - $750,000

Or, (1.05 x CA) / 2.3 = CA - $750,000 ------------- Replacing CL = CA / 2.3 ------Equation 1

Or, (1.25 x CA) / 2.3 = $750,000

Or, CA = ($750,000 X 2.3) / 1.25 = $1,380,000

Since Current Assets = $1,380,000, Non Current Assets will be

Total Assets – Current Assets = $2,800,000 - $1,380,000

= $1,420,000 (Answer.)

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